Facebook, Spotify and the Future of Music

By Steven Levy /Wired November 2011

A decade ago, Napster’s attempt to set music free was crushed by the music labels. Now, Facebook and Spotify (not to mention Google, Amazon, and Apple) have resurrected the dream. Hallelujah.

Even if Facebook CEO Mark Zuckerberg hadn’t been introduced to Spotify two years ago, it was probably inevitable that the two companies would hook up. The European music service had already won millions of fans, thanks to a business model that allowed music nuts to stream any song, instantly, for free. More important, it made it easy for people to share music with one another. This vision—of music as a social experience—fit perfectly with Facebook’s view of the world, which values sharing over all else. And that’s why, when former Facebook president and Napster cofounder Sean Parker discovered Spotify in 2009, he made a point of telling Zuckerberg about it.

“I’d never even heard of Spotify, but Sean mentioned it to me one day,” Zuckerberg says. “I was like, wow, this person has built a really cool music product and also understands how you can integrate social things in it.” Within a day, Zuckerberg had updated his Facebook status: Spotify is so good.

This brief blessing from the Pope of Poke presaged a turning point for the entire music industry. The original Napster—which let users download practically any song for free—may have died a decade ago, but its ghost still haunts the major labels. Unleashed in a dorm room in 1999 and killed in a courtroom in 2001, it taught a generation that music should be obtained with mouseclicks, not money. Music executives interpreted it differently: Allow people to share music online and they will never pay for it again. For much of the past decade, their attitude toward digital music and licensing has been driven by the fear that showing one bit of flexibility will summon Napster back from the grave to destroy what’s left of their business.

Every one of these young music companies is scrambling to attract Facebook users as quickly as possible.But that’s changing now. In September, after two years of speculation following Zuckerberg’s four-word swoon, Facebook announced an ambitious initiative that lets its users quickly and easily share music with one another—in many cases for free. Facebook worked closely with Spotify, as well as with a dozen other services, and is opening itself up to potentially hundreds more. Now Facebook users will see the songs that their friends listen to, the playlists they compile, and the bands they discover. And they can easily hear all that music with a single mouseclick.

An orgy of free song-sharing seems to be exactly the kind of thing that the horrified labels would quickly clamp down on. But they appear to be starting to accept that their fortunes rest with the geeks. Or at least they’re trying to talk a good game. “I’m not part of the past—I’m part of the future,” says Lucian Grainge, chair and CEO of the world’s biggest label, Universal Music Group. “There’s a new philosophy, a new way of thinking.”

Facebook’s music initiative is only one example of the neo-Napster transformation in which music is streamed from a collection of servers, rather than stored on local hard drives. Indeed, over the past year, every dominant Internet company—including Apple, Amazon, and Google—has ramped up a streaming music service, each one an attempt to reinvent the way we purchase and listen to music. Smaller companies like Rhapsody and the personalized radio service Pandora have championed the streaming model for years; now they are being joined by second-generation services like Rdio, MOG, and Turntable.

Taken together, all of this activity is shaking up an industry that has stubbornly resisted change. The music world has barely managed to process the revolution wrought when songs became files. But streaming subscription services hasten an even bigger upheaval: songs becoming links, playable with one click, from a newsfeed, email, or Facebook profile. The real fun is about to begin.

Daniel Ek, Spotify’s CEO, was barely in high school when Napster sprang up in 1999, and he speaks wistfully of the defunct service as if it were a first love. “My whole life changed,” he says. “Before Napster, I didn’t listen to the Beatles. I didn’t listen to all the guys that are my favorite bands now.”

Ek is a soft-spoken Swede with an egglike dome and a penchant for polo shirts. A product of Scandinavia’s rich hacker tradition, Ek used to head a torrent operation, helping users anonymously swap large media files, before concluding that it would be more efficient to find a legal way of providing that service. He took it for granted that the best way to listen to music was to give listeners unlimited access to an exhaustive catalog of songs, stored on servers and accessible over the Internet. That’s basically what Napster was, except it didn’t stream, it was really slow and often unreliable, and it could get you sued. Ek came up with a different business plan: The bulk of his users would listen for free, but they would have to submit to a few minutes of ads every hour. A percentage would pay for higher levels of service, but even customers who never coughed up a dime would bring in enough ad revenue to be profitable. The labels, in turn, would receive a fraction of a cent every time one of their songs was streamed.

The hyperkinetic Sean Parker describes himself as “a Chinese hamster that has been fitted with an experimental math co-processor, wet-wired into my brain by Ray Kurzweil.”

Spotify wasn’t the first music service to allow customers to stream whatever songs they wanted. But over the past decade, companies that charged subscription fees have been slow to catch on. (Even Rhapsody, one of the best known of these services, has fewer than a million users.) By 2006, Apple’s Steve Jobs was mocking the model. “We just don’t see a demand for it,” he told me that September. “We’ve seen all the subscription services crash and burn. People don’t want to rent their music.” (iTunes, on the other hand, used the same business model that was around when people were buying Al Jolson records: You pay for music, and then you own it.)

Ek would launch his service two years after Jobs rendered his dismissive verdict. During that period, Ek points out, Apple introduced the iPhone, and Facebook became an online superpower. Together, they defined two new domains of digital life—the mobile web and social networking—that would overtake the net. Ek saw that together these breakthroughs could help create the music service he’d always dreamed of. Smartphones meant that people could listen to streaming music while on the go—even in their cars!—instead of being tethered to their computers. And on social networks, people could get music directly from their friends instead of from digital superstores or sketchy pirate havens. “All of a sudden,” Ek says, “you’ve got two new superplatforms.”

Ek set about creating a streaming version of the service he hoped to supersede: iTunes. Like Apple’s online store, Spotify’s design favors simplicity and functionality. It is also just as fast as iTunes, no easy feat considering that Ek’s users don’t play songs from a library stored inches away but from a catalog of more than 15 million tracks that resides on a server sometimes thousands of miles away. “We need to make sure that 95 percent of all streams are delivered within 200 milliseconds, the time it takes the human brain to perceive if there’s any delay,” Ek says. “If we deliver that, people will feel like all the world’s music is accessible on their hard drive.”

Customers can stream unlimited music for free—at first. After six months, the monthly limit drops to 10 hours, at which point Spotify hopes users will pony up for a subscription.

The latest version of the streaming music service allots a set amount of music that users can listen to for free. They can earn more free tunes by sharing songs and playlists.

This free streaming online radio service isn’t supported by advertising. Instead, it plans to charge artists to promote themselves while listeners check out their music.

With this Clear Channel app, users can tune into broadcasts from 750 radio stations or tailor stations to their own taste for free. No commercials—at least until the end of the year.

This free service operates as a virtual venue for DJing. Users vie for points by creating crowd-pleasing playlists for other avatars in genre-themed listening rooms.

The godfather of streaming music charges $10 a month to listen to tunes on one phone or MP3 player. Pay a few bucks more to add additional mobile devices.
But Spotify’s ultimate feature—the one that suggests just how radically our listening habits may be about to change—is its social tools. Gustav Söderström, Spotify’s chief product officer, explains that its free model acts as a catalyst for social discovery. With iTunes, you have to pay to hear a song that a buddy has recommended, even though it might be a dud. “Those costs prohibit discovery,” Söderström says. “If there was a cost for checking out a new video on YouTube, you would not sample a lot of videos.” With Spotify, there’s no cost barrier, making it much more likely that people will sign up and start listening. Once they do, friends can simply drag songs or entire albums into one another’s inboxes. And links to songs can easily be posted online.

Ek understands that the future of Spotify hinges on its social aptitude; the more people come to rely on the service for recommendations from their friends, the more likely they’ll get hooked and eventually pay for the premium version. (In the US, it costs $5 a month to turn off the ads and $10 for a version that also works on mobile phones and allows offline listening.) “Our job is to try to get you to share as much music as possible and to get recommendations from your friends,” Ek says. “The more we can do that for you, the better it is for us as a business.”

Most people know Sean Parker as the guy that Justin Timberlake portrayed in The Social Network, an association that Parker professes to hate. Still, even Timberlake’s portrait of jittery energy is insufficient preparation for the hyperkinetic presence of the real thing; Parker is so brainy and intense—he delivers mile-a-minute, shockingly well-informed improvisations on everything from molecular biology to enology, with nary a caesura—that it’s a kind of superpower. (Parker’s own self-description can be found on his Facebook profile: “I’m a Chinese hamster that has been fitted with an experimental math co-processor, wet-wired into my brain by Ray Kurzweil. I also have an empathy chip.”) His résumé is both impressive and harrowing. He holds a 4 percent stake in Facebook—currently worth billions—a company he was pressured to leave after a bogus drug bust. He cofounded the online address book service Plaxo before board members forced him out.

But one of Parker’s greatest regrets has been his inability to realize the vision he had for Napster, which he cofounded in 1999. The fledgling company was trying to establish itself as a legitimate business while fending off a new file-sharing rival called Gnutella. At the time, the system involved multiple music servers—users could pick one of several locations from which to download their songs. Parker thought that Napster should centralize, arguing that it would make it easier for users to find each other. As Joseph Menn wrote in All the Rave, a book about Napster published in 2003, “Parker imagined the system would allow users to post personal profiles, showing what music they had available, what they were listening to most, and what they had been playing most recently. If another user downloaded a file from that person, they might want to see what else the person was interested in.” Parker told Menn back then that this would “usher in a golden age of music.”

A barrage of copyright-infringement lawsuits prevented Parker from fulfilling that dream—until he came upon Spotify. He wrote a 1,700-word love letter to Daniel Ek. “To create the next revolution in digital music I believe that you must both meet and exceed the bar set by Napster a decade ago,” he wrote. “You guys have finally done it.” Ek wrote an eager response, and Parker eventually become an investor in Spotify (through the Founders Fund), a board member, and an ambassador to label executives and musicians. “We never intended to break the music industry,” he says of his Napster exploits. “We were just the forcing event that accelerated that whole process.” Now, he says, he hopes to restore what he helped destroy.

After Parker wowed Zuckerberg with Spotify, the two companies began trying to figure out the best way to put music into Facebook. But Zuckerberg was already thinking beyond Spotify—even beyond music. Facebook, having amassed one of the largest audiences in human history, was shifting its energies. Now that it had successfully connected so many people, it could concentrate on making the network a social hub for more of the activities they participated in every day. It was all part of the grand strategy that Facebook calls the Open Graph, an initiative that allows developers to create services that let people share everything—not just photos, messages, and status updates but movies, books, news articles, and so on.

Still, music was destined to be a big part of Facebook’s strategy. “Music is such a great example of this, because it’s uniquely tied to people’s identities,” Facebook CTO Bret Taylor says. “People wear T-shirts with their favorite groups on them—in high school I had patches on my backpack of all the punk bands I listened to.” If Facebook had access to people’s listening habits, it could seamlessly make music a part of their online identity as well—storing a complete log of what everyone listens to and making that information available to their Facebook friends.

And just as Facebook empowered developers—like Zynga—to create social games, the company hopes to empower developers to create social music. “There’s no way Facebook is going to ever build those services itself,” Zuckerberg says, “so we’re trying to enable an ecosystem of developers to build great experiences in different areas.” When it comes to music, this is a particularly clever approach, as it avoids the mishigas that has plagued every other tech company that has become entangled with the music industry. Since Facebook offloads the actual streaming to its partners, there’s no need to negotiate licenses with music industry honchos. “We’re not trying to make a music product,” Zuckerberg says. “We’re trying to make something so that people can learn stuff from their friends and can share with them and express themselves.” But users may not make that distinction—Facebook certainly feels like a music service now. Without signing a single contract, it has suddenly become the place where people share new songs with one another.

The digital world has not been kind to artists, decimating royalties and reducing their gorgeous album covers to thumbnails.Spotify had to accept the fact that it wouldn’t be Facebook’s only musical friend. “We were up-front from the very beginning,” Zuckerberg says. “We said, ‘It was cool to talk to you guys, and we want to build something, but this is going to be an open platform, and we’re going to work with your competitors.’” Last spring Facebook began talking with companies like Rhapsody, Rdio, and Pandora—and even to smaller ones like Earbits, which had launched as a Y Combinator startup around the same time.

By giving these services access to its 800 million users, Facebook has set in motion a gold-rush-level frenzy. Network effects dictate that only a small handful of services will dominate—once a service begins to take off, its popularity becomes self-reinforcing—and so every one of these young music companies is scrambling to attract users as quickly as it can. Each of them is carving out a unique strategy to navigate the rush. “It’s like going from Route 66 to a major highway,” says David Hyman, founder and CEO of MOG. His plan: a free service for users who spread their song choices far and wide—and bring in more MOG customers. When you join, you are assigned a “gas tank” with a certain number of songs in it—if you share promiscuously, MOG will top off your tank. “The amount of free music you can get is based on how many friends you have,” Hyman says. “If you’re really viral, you’ll never have to pay. Real tastemakers will get free music forever.” If it works, he says, MOG could have a “Zynga-like viral effect,” with Facebook catapulting his company to stardom.

Models like MOG’s could also promise to change the way music is discovered and distributed. The hottest music startup of 2011—web service Turntable—has also developed an Open Graph application. Turntable is a cross between Internet radio, Second Life, and those 2 am dorm-room sessions where kids compete to see who has the coolest music collection. As many as 200 users pile into themed music rooms, where up to five DJs compile playlists from a large online library or by uploading their own tunes. The crowd favorites get points, but the real fun is hanging out and hearing new songs in real time while typing out SMS-like trash talk. “We see ourselves as this discovery platform that’s better than anything out there, because it’s human-curated,” CEO Billy Chasen says.

But if any of these rival services are to triumph, they’ll have to outdo Spotify, which is perfectly tailored to the new Facebook platform. While specifying that Facebook is playing no favorites, its VP of partnerships and platform marketing, Dan Rose, cites two aspects of Spotify that might give it an advantage over its rivals. “One is, they certainly have gone the deepest and furthest in making their product social from the ground up. And second, they have a business model that may be really aligned with the kind of social discovery and serendipity that our platform is designed to enable. If I see that you’re listening to a song or an album or an artist and I want to hear it, I can do that with very little friction using Spotify.”

And for free! At least for a while. Spotify’s new users can listen to their favorite songs over and over and can use the service as much as they like. But after six months, if they don’t want to pay, they can play a given song only five times—and listen to a total of 10 hours of music—per month. “We’re going to have this six-month period where the user gets to bake in the system, gets to build their library, build playlists, become addicted to the experience, to the point where they want that experience with them everywhere they go,” Parker says, sounding a bit like a drug dealer who gives away free samples, “at which point they’re much more likely to subscribe.” Spotify’s competitors have another view. “How free is free when it’s not free forever?” asks Rhapsody CEO Jon Irwin. “If I could listen to ‘Paint It Black’ only five times, I would cry.” Meanwhile, Rhapsody is jumping on the social bandwagon—the week before the Facebook announcement, it launched “a remixed and remastered experience” that puts its users in touch with each other. And Rhapsody, too, is integrated into Facebook.

Music icon Trent Reznor isn’t sold on the idea of social recommendations. “I don’t care what my friends are listening to. Because I’m cooler than they are.”

To fight Spotify, even services that depend on paid subscriptions may choose to create their own freemium offerings. Rdio, for instance, has resisted offering a free version, but at press time, CEO Drew Larner was close to introducing one. “The issue is how to dole out free in a way that makes sense,” he says. “And then getting a goodly number of people to convert to paid so that we can pay our bills.”

Meanwhile, the tech superpowers—Google, Amazon, and, of course, Apple—all have their own plans, each geared to their respective strengths. Google’s Music Beta product—a free service that lets users stream music that they’ve uploaded to Google’s servers—is tellingly located in its Android division, suggesting that Google plans to offer an alternative to the iTunes empire. (Though Google hasn’t released details, the company has also hinted that it will allow people to share music on Google+, its new social network.) Amazon also allows people to store their music purchases in the cloud and may eventually develop a plan that competes with the subscription services. “We’re not tied to any one business model,” says Bill Carr, Amazon’s vice president of movies and music. “If we were, we’d still be only a book retailer.”

And ever since Apple bought Lala—a music startup with a business plan similar to Spotify’s—in 2009, observers have suspected that a subscription version of iTunes is in the works. Unlike Google’s and Amazon’s cloud music services, which require users to painstakingly upload songs to a distant server, Apple used its clout with the music industry to create iTunes Match, a service that automatically stores iTunes purchases on Apple’s servers, where they can be accessed by many devices, for $25 a year. That may well be a down payment on a streaming version of iTunes. Ultimately, the effect of all these cloud services might be to clear one of the highest hurdles to a streaming subscription future: the psychological attachment that people have to owning their music. Once songs live in the cloud—and customers pay rent to store them—it’s a small step to do away with the concept of ownership altogether.

A few days before Spotify’s July 14 US launch, Sean Parker is engaged in one of the numerous unofficial tasks he performs for the company: pitching the service to performers, songwriters, and agents. Parker’s temporary headquarters this evening is a cabana at the Peninsula Hotel in Beverly Hills, the waters of the rooftop swimming pool rippling in the twilight. Joining Parker is Spotify “artist in residence” D. A. Wallach, a redheaded Wisconsin kid with a Harvard degree who sings in a group called Chester French.

With all the attention on services, labels, and customers, it can be easy to overlook the most crucial players: the people who actually make the music. The digital world has not been kind to them—it has decimated their royalties and shrunk their gorgeous album covers to thumbnail size. But in the race to own social music, they have become valuable assets—brands that can bring their fans to whichever service they get behind. Now Parker is eagerly seeking their endorsement, hoping that their participation will lure followers.

After schmoozing with Smashing Pumpkins’ Billy Corgan and superproducer Dr. Luke, Parker takes an audience with industrial-metal icon Trent Reznor. If Parker harbors any hard feelings toward Reznor, who cowrote the Oscar-winning score of The Social Network, he doesn’t show it. Reznor wants to make it clear that while he likes new ideas, he’s still nostalgic for the predigital age. “I’m 46,” Reznor begins. “I came to digital reluctantly. I still have the romantic idea that vinyl and record stores matter. Digital isn’t the same as smelling the vinyl and lowering the needle or complaining that your girlfriend is scratching the record.” He’s also not sold on the idea of social recommendations. “I don’t care what my friends are listening to,” he says. “Because I’m cooler than they are.” Finally, he discusses the old business model where musicians like him didn’t have to tour so much and could live on royalties.

Parker is sympathetic. “It’s up to me to create a model where that can happen,” he says. Combining the viral nature of Spotify with Facebook’s 800 million users, he argues, will result in “the ubiquitous music distribution plumbing for the entire Internet.” Digital economics have transformed other industries and created huge wealth. “That economic power has never applied to music before,” he says. Now it will. When music is exchanged freely as links—and a business model silently racks up tiny micropayments for labels, ostensibly paid for by hundreds of millions of monthly subscription fees and millions of ads—the measly profits that the current music industry reaps will get much less measly.

By the end of Parker’s spiel, Reznor is enthusiastic. “I’m on board,” he says. “You can be the great radio station of the world.”

Spotify may not get there on its own. But taken together, these services could create something even grander—a global music infrastructure, where any song is just a click away. And they might finally exorcise the ghost of Napster.


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One Response to “Facebook, Spotify and the Future of Music”

  1. felixvargas Says:

    Reblogged this on Entorno EVAPTIC: Entornos Virtuales de Aprendizaje.

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